The Small Business Administration reported that nearly one-third of startups don’t cross over the first two years, and almost half of them shut down within five years.
It rings a loud bell but comes as no shock because money management is one of the biggest challenges facing entrepreneurs.
If a 2016 survey found; 36 percent of small companies mentioning cash flow management as a problem, and 43 percent citing increasing revenue as a challenge, then it means budding entrepreneurs still need assistance handling business finances.
So where does the rain start falling on you and how can you read red flags and plan accordingly.
Starting Up without a Solid business plan
A building can’t commence without a blueprint, so how do you expect your small company to grow big without a business plan? Your business plan is also the only way to convince moneylenders or investors that you have good vision.
“I have it all figured out; I need no business plan. Plus, I won’t be looking for business funding.” Hey, stop! Don’t go down that path. Your business plan is an essential roadmap to guiding your company operations and not just a tool to help you get business funding.
Ensure your plan narrates your firm’s story from the past, to present and to the future. Set quarterly and monthly goals to track progress in year 1. Plus, goals are easier to chase if we put them down.
Mixing personal and business finances
Whether you are making a profit or not, it is critical that you open a bank account for your startup. Your business goes live as soon as you start earning money from it. So, you want to start separating your business from personal finances.
In the beginning, you can set up a checking account to use for your business transactions, but you’ll soon need to upgrade.
That way, you can have a clearer vision of business finances without complicating the math with your personal finances.
Ignoring Tax Liability
At first, handling taxes may not seem like a big deal, but things may get out of hand as soon as your business upgrades into a bee-hive of activities. Managing business taxes is your responsibility so you shouldn’t leave all the work to your accountant.
Don’t overlook taxes or miss dates. Stay on top of your tax responsibility by paying quarterly taxes using your income. You also want to familiarize yourself with any state and industry taxes to ensure you are not dodging any taxes unknowingly.
Not anticipating and preparing for the worst
When profits begin to flow in, most businesses start to forget about stormy days thinking it will be all summer and shiny throughout. Don’t be that kind of entrepreneur, stay focused by having some money reservoirs to cover up for emergencies.
An emergency fund is a must-have, so you’re better off if you start thinking of it as a monthly expense and not a burden. If possible, start a savings account after six months of operation. You can apply for credit lines or cards to use only during emergencies.
You also want to use business loans to improve your business situation. Loans are not bad, but they are only as good as you use them. Correct these financial management mistakes and have your business survive and thrive through different storms.